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Next loses battle with HMRC over tax avoidance scheme

Next has been hit with a £22.4m tax bill after a court ruled the firm's complex 'rate-booster' tax scheme was "artificial tax avoidance".

HMRC’s Director General of Business Tax Jim Harra said:
“This case shows how HMRC takes effective action against big businesses that try to avoid paying tax through convoluted, artificial avoidance schemes. HMRC expects all businesses to steer well clear of such schemes.”

Next told the Financial Times that it was considering appealing against the ruling but stressed that it had no accounting or cash consequences as the tax had already been paid and accounted for. Next was also keen to minimise the significance of the case: “The claim was for £22.4m — of the £1.3bn of Corporation Tax that Next has paid over the past 10 years — and it should be taken in that context,” Next said.

Rate-booster schemes involve trying to avoid Corporation Tax on foreign profits that are paid back to the UK from a subsidiary. The UK company receiving these profits gets credit for any foreign tax the subsidiary paid. The rules are designed to prevent companies being taxed twice on the same income and is known as double taxation relief.

Some companies set up artificial arrangements involving complex circular movements of money between companies in the same group so they can claim there has been double taxation.

HMRC said that about 70 rate-boosters have already been conceded by companies rather than go to court, bringing in more than £500m in tax.

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